Connecticut Divorce: $13.99M Estate Tax + §46b-81 Distribution

Connecticut's divorce statute has three features that make it unique in the US. First, Conn. Gen. Stat. §46b-81 is an "all-property" statute — the court can divide ANY property of either spouse, including assets acquired before marriage, inherited, or gifted. Second, CT's state estate tax now matches the federal $13.99M exemption (effective 2023). Third, CT is the only US state that retains a state-level gift tax. For high-asset CT divorces — particularly those over $5M — these three rules interact in ways that affect settlement structure materially.

The quick answer: Connecticut equitable distribution under §46b-81 is one of the broadest all-property statutes in the US — the court can divide any property, marital or separate. CT state estate tax matches the federal $13.99M exemption and CT is the only state with a gift tax.

The §46b-81 all-property statute: broadest in the US

Connecticut General Statutes §46b-81 directs the court to "assign to either spouse all or any part of the estate of the other." This language is broader than any other US equitable distribution statute. There is no formal exclusion of separate property, pre-marital property, inheritances, or gifts from the divisible estate.

The statute lists factors the court considers:

• Length of the marriage
• Causes for the annulment, dissolution, or legal separation
• Age, health, station, occupation, amount and sources of income
• Vocational skills, employability, estate, liabilities, and needs of each party
• Opportunity for future acquisition of capital assets and income
• Contribution of each in the acquisition, preservation, or appreciation in value of their respective estates

In practice, CT courts often respect the separate character of pre-marital and inherited assets — particularly in shorter marriages and when those assets were kept segregated. But the court has unrestricted authority to redistribute. Krafick v. Krafick (1995) established that even technically-separate property can be redistributed when equity demands it. In a 24-year marriage with $14M in combined assets, expect the court to consider EVERY asset, regardless of formal title or source.

The Connecticut estate tax: federal parity since 2023

Connecticut imposes a state estate tax under Conn. Gen. Stat. §12-391. P.A. 22-110 (signed 2022) phased the CT exemption up to match the federal exemption, completing the phase-in in 2023. For 2026, the CT exemption is $13.99M per individual — identical to the federal exemption.

Key features:

• Exemption: $13.99M per individual (2026, matching federal)
• Rate: flat 12% on amounts above the exemption
• No portability of CT exemption between spouses (federal portability does NOT extend to CT)
• Top federal rate (40%) plus CT rate (12%) = combined 52% on amounts above exemption

For divorcing couples with combined estates below $13.99M (the vast majority), CT estate tax is not currently a concern. For couples above that threshold, the CT estate tax adds a 12% layer on top of the 40% federal rate — meaning planning to reduce both becomes critical.

The Connecticut gift tax: only state in the US

Under Conn. Gen. Stat. §12-642, Connecticut imposes a state-level gift tax. It is the only US state with one. The CT gift tax is unified with the CT estate tax — meaning lifetime gifts above the exemption count against the $13.99M unified exemption. The rate is 12%.

The federal $19K (2026) per-donee annual exclusion applies in CT as well under Conn. Gen. Stat. §12-644. Gifts within the annual exclusion don't count against the unified exemption.

In divorce, IRC §1041 treats transfers between spouses or former spouses incident to divorce as non-taxable for income and gift tax purposes. CT conforms to this treatment. So the property division in a CT divorce does not trigger gift tax. But post-divorce gifting strategies (to children, trusts, charities) must coordinate with the CT gift tax. For high-net-worth CT individuals planning to use the federal $13.99M exemption through lifetime gifts, the CT gift tax adds a complication that doesn't exist in any other state.

Worked example: Greenwich couple, $14M with business interest

Elizabeth (56) and James (58) are divorcing in Greenwich after 24 years of marriage. Their assets:

• Marital home in Greenwich: $4.5M (equity $3.8M after mortgage)
• James' investment portfolio (his career as a hedge fund analyst): $4.1M
• Elizabeth's investment portfolio (her inheritance from 2008, plus growth): $2.7M
• Joint brokerage: $1.4M
• James' 401(k): $980K
• Elizabeth's IRA: $320K
• James' 30% interest in a financial advisory firm: $2.7M (per business valuation)

Step 1: §46b-81 classification

Unlike most states, CT does NOT formally exclude Elizabeth's $2.7M inherited portfolio from the divisible estate. But the court will consider that the inheritance was kept in her sole name and not commingled. Given the 24-year marriage, CT courts often include inherited assets in the analysis even when they remained titled separately. The court might award most of the inheritance to Elizabeth but treat its presence as an equalizing factor in the rest of the division.

Step 2: Equitable distribution under §46b-81

Total marital estate (including Elizabeth's inheritance for analytical purposes): approximately $16.7M. James and Elizabeth made comparable contributions over 24 years — James earned more in salary, Elizabeth managed the home and contributed to the business administratively in early years. A CT court would likely apply close to 50/50.

One possible structure:

• Elizabeth: keeps her $2.7M inherited portfolio + $4M of joint/marital assets = $6.7M total
• James: keeps the $2.7M business interest + remaining $7.3M of joint/marital assets = $10M total
• OR closer to actual 50/50 with offsetting buyouts: each spouse at $8.35M

The exact structure depends on Elizabeth's arguments about her separate inheritance vs. James' about the business being his personal effort. CT courts typically arrive at a compromise position.

Step 3: Business valuation

James' 30% interest in the advisory firm is valued at $2.7M. The valuation expert applies an income approach with discounted cash flow ($3.5M gross) minus a 15% minority discount and 10% lack-of-marketability discount = approximately $2.7M. Personal goodwill (James' client relationships specifically) is excluded under Eslami v. Eslami principles.

Step 4: CT estate tax planning

Post-divorce, each spouse has approximately $7-8.5M in assets. Both are below the $13.99M CT exemption. But:

• Assume 5% real growth over 25 years (to age 81): $7M grows to ~$19M, well above the exemption
• CT estate tax at 12% on the excess ($5M+) = $600K+
• Federal estate tax at 40% on the same excess = $2M+
• Combined federal+state at 52% = $2.6M+ at death without planning

Step 5: Post-divorce gift planning

Elizabeth and James each plan to use the federal $13.99M lifetime gift exemption over time to shift assets to children/trusts. But because CT is the only state with a gift tax, gifts above the annual exclusion count against the unified $13.99M CT exemption. Strategies:

• $19K annual exclusion gifts to children/grandchildren: no CT gift tax, no use of exemption
• Direct tuition and medical payments: unlimited, no gift tax
• Lifetime gifts to grandchildren via GST-exempt trusts: $13.99M unified exemption used
• Spousal lifetime access trusts (SLATs): post-divorce, no longer available between former spouses

Strategic considerations for Connecticut divorces at $5M+

• Document separate property aggressively. Even though §46b-81 allows redistribution of all property, CT courts respect well-documented separate property in proportion to how clearly it was segregated. Bank statements, brokerage statements, and tracing from pre-marital or inherited sources matter.
• Engage credentialed business valuators early. CT case law on personal vs. enterprise goodwill is mature. Use a CVA or ABV-credentialed appraiser familiar with CT case law to maximize personal-goodwill exclusion arguments.
• Plan around the unique CT gift tax in post-divorce strategy. Post-divorce gifting to children/trusts must account for the CT gift tax that doesn't exist in 49 other states. Coordinate with a CT estate attorney to maximize the unified exemption efficiently.
• Consider domicile changes post-retirement. If you can retire to Florida, Texas, or another no-estate-tax state, you eliminate CT's 12% estate tax exposure (though federal still applies). For couples above the $13.99M federal threshold, this can save millions.
• Use CT's graduated income tax (3-6.99%) in distribution planning. Post-divorce, sequencing Roth conversions, pension distributions, and other taxable events to fill lower CT brackets saves meaningful tax. The 6.99% top rate kicks in at $500K (single) / $1M (MFJ).
• Mediation is mandatory under §46b-67(c). Use it strategically — high-asset cases often resolve in mediation faster than at trial, preserving relationships and avoiding public disclosure.

Fairfield County, Hartford, and New Haven practices

Connecticut divorces filed in Superior Court at the judicial district level. Fairfield County (Stamford, Greenwich, Norwalk) handles the highest-value divorces in the state due to proximity to NYC and the concentration of hedge fund and finance professionals. Hartford and New Haven also see significant high-asset cases. Specialized family law judges and a well-developed CDFA/forensic accountant/business valuation network are concentrated in these metros.

The 90-day post-service waiting period under §46b-67 is the only statutory waiting period. Mandatory parenting education for parents of minor children under §46b-69b is a 6-hour program (less than MN's 8-hour requirement).

Key takeaways

• Connecticut §46b-81 is the broadest equitable distribution statute in the US — the court can divide any property of either spouse, regardless of source.
• The CT state estate tax now matches the federal $13.99M exemption (2026, effective 2023). Top combined federal+state rate above the exemption is approximately 52%.
• CT is the only US state with a state-level gift tax (12% above the unified $13.99M exemption). Post-divorce gift planning requires CT-specific analysis.
• Personal goodwill is excluded from CT business valuations under Eslami v. Eslami; enterprise goodwill is included.
• CT alimony under §46b-82 has no statutory formula. The court applies broad discretion based on 12 statutory factors.
• 90-day post-filing waiting period under §46b-67. Mandatory parenting education for parents of minor children under §46b-69b (6 hours).
• Post-TCJA federal alimony treatment applies — no deduction for the payer, no income inclusion for the recipient, on post-2018 decrees.